US Fast Food Workers And Minimum Wage Rises

Some fast food workers want $15/hr which according to Bureau of Labour Statistics data would place them on the same compensation level as medical secretaries, slot machine supervisors and animal control workers.

This is interesting:

…raising the hourly wage to $15—about two-thirds more than what the average employee earns now—would likely wipe out profits at these company-owned stores. “If wages are the majority of labor [costs], and it doubled to more than 50 percent of revenue, restaurant operating income would clearly be a loss, assuming static menu prices,” explains Sharon Zackfia, an analyst at William Blair & Co. Assuming all wages double and other expenses don’t decrease, menu prices at McDonald’s would have to go up about 25 percent, which means an extra $1 for a Big Mac and a “Dollar Twenty-Five Menu” in place of the Dollar Menu.

Fast food chains would pass on higher labour costs in the form of higher prices. The $1.25 menu replacing the $1 menu would be fascinating to watch to see how elastic demand is for such cheap fast food with a 25% price rise.

In terms of wage setting and price setting – this is straightforward stuff. If the fast food workers are able to negotiate a $15/hr wage, their employers will raise prices and there could be enough of a negative response to $1.25 cheeseburgers that some fast food workers will lose their jobs.